There is an assumption among big-government policymakers which holds that citizens can be made to stop doing things politicians don’t like by taxes instituted on those things.
“If you tax something you get less of it,” is an economic rule of thumb. And the politicians think that if they tax things like smoking or unhealthy foods people will smoke less and eat healthier foods.
Except, that’s not usually how it works. The latest example is Denmark where lawmakers are getting rid of a “fat tax” that failed miserably:
Nations including Switzerland, the U.K, and Germany have held up the tax, which applies to any food containing more than 2.3% saturated fat, as a potential model for addressing obesity and other health concerns. But in Denmark, it has been a source of pain for consumers, food producers and retailers as the nation’s economy struggles.
“The fat tax is one of the most maligned we [have] had in a long time,” Mette Gjerskov, the minister for food, agriculture and fisheries, said during a news conference Saturday announcing the decision to dump the tax. “Now we have to try improving the public health by other means.”
The failure of Denmark’s fat tax is a demonstration of how difficult it can be to modify behavior by slapping additional duties on products seen by many as essential staples, especially during tough economic times. Products such as butter, oil, sausage, cheese and cream were subject to increases of as much as 9% immediately after the new tax was enacted.
So why didn’t the fat tax work? Danes did change their behavior, but only in so far as they started buying cheaper alternatives of the “unhealthy” food they weren’t supposed to be eating, not to mention crossing the border to buy the foods they want at lower tax rates:
The fat tax was created in 2011 to address Denmark’s rising obesity rates and relatively low life expectancy. There is little evidence the tax impacted consumers financially, but it did spark a shift in consumer habits. Many Danes have bought lower-cost alternatives, or in some cases hopped the border to Germany, where prices are roughly 20% lower, or to Sweden. …
The Sky supermarket located in northern Germany was one company benefiting from the trend. Last week, more than half the cars in the crowded parking lot had Danish license plates.
“We did not use to buy cheese here, but the price difference for our favorite type is now more than 30%,” Anitha Nissen said, while helping her husband load groceries into their silver Suzuki. The Danish couple now crosses the border three or four times a year to stock up on goods.
While some German businesses have benefited, many Danish companies say they have suffered.
Here in America, when states have cranked up taxes on cigarettes, consumers have changed their behavior, but only to the extent necessary to circumvent the taxes. They buy black market cigarettes under the table, avoiding the tax. Or they travel across state lines, or to places like Indian reservations, where the taxes are lower or non-existent.
Because markets are dynamic. Regulations are static.